The word “contract” has different effects on different people. To some, it causes eyes to glaze over. To others, the word causes blood pressure to rise. Your brain may fill with visions of lawyers, legal mumbo jumbo, and piles of paper packed with legal mumbo jumbo.
To me, contracts aren’t boring or scary — they’re interesting and smart. The purpose of most contracts is to create realistic expectations, for each side to know his or her responsibilities, and plan for what will happen if something goes awry.
You probably entered into a contract today — from your sleep-deprived payment for a simple cup of coffee to your lease agreement with your landlord. Or maybe you and your roommate agreed that you’ll disinfect the bathroom this week if she’ll clean it next week. Whenever two people exchange promises (like money for coffee or scrubbing for scrubbing), a contract is formed.
The goal of this post is to provide information for Etsy sellers when reading a simple contract, such as a vendor agreement, freelance agreement, wholesale contract, a consignment agreement, or a custom order agreement. Remember that contract law varies from place to place and generally, contracts may be enforceable whether they are oral or in writing. Also, for a contract that will greatly affect you or your business, you may want to speak with an expert, like a lawyer.
Step 1: Get Mentally Prepared
Before you read a contract, think about what you expect to read. What responsibilities do you expect to have? What do you expect the other party to do? What do you absolutely need? What could go wrong?
Make a list before reading one word of the contract. After you read the contract, review your list.
Step 2: Print the Contract
I know, I know, trees provide shade and homes for birds, but they also provide a convenient surface for contract printing, and they save me stress. Thank you Mr. and Mrs. Tree. Every word in a contract matters, and, in all seriousness, if you’re anything like me, you’ll find it easier to read pages of paper than a computer monitor, iPad, or smartphone. Feel free to shred and recycle or make a craft project with your contract drafts.
Step 3: Read the Contract
Unless you’re not fluent in the contract’s language, read every word. If you're not fluent in the contract's language, get some assistance. Sure, reading a contract may not be as entertaining as soaking in your favorite novel or magazine, but this writing has likely consequences on you or your business.
Find a quiet corner in the world and read the contract thoroughly with a pen in your hand. Use that pen to underline key sections, take notes in margins, and write questions. Then, examine your notes from Step 1: Get Mentally Prepared. If possible, read the contract again.
Step 4: Pay Attention to the Language
A contract comes down to the details. What will you do, and what will the other party do? You have to be comfortable with these details. Here are some terms that are commonly found in business contracts:
- Term/Termination: When does the contract begin and when does it end? How long will you have this agreement? What if someone wants to end the agreement?
- Renew: What happens at the end of the agreement? Some contracts have one Term (like, the contract is good for a year) and then after that time, if you or the other party doesn’t properly end the agreement, the contract will automatically extend for another period of time. If your contract automatically renews, how does this work? What if you want to change some of the promises?
- Indemnity: In the event there’s a lawsuit, will you protect the other company? Will they protect you?
- Exclusivity: Is this the only agreement you will have about this specific situation? What if you want to enter into similar agreements?
- Confidentiality: Is this agreement, or its details, a secret? Who needs to keep things secret?
- Fees / Payment: If money is exchanging hands, how much? When is the money exchanging hands? How is this payment conducted?
- Breach: What responsibilities do you have? What responsibilities does the other party have? If something goes wrong or someone fails to do something required in the contract, what will happen?
Step 5: Discuss the Contract With the Other Party
Now that you understand the contract, your responsibilities, and the other party’s responsibilities, you may have some negotiating to do. Get your questions and comments together and set up a time to talk with the other side. Be your own advocate. Don’t be afraid to ask for what you want. Also, do not make assumptions; if you have questions, talk things out. And, as always, remember to keep things professional.
Depending on your negotiations, the contract may need revisions. And remember, if you cannot agree on the terms or you do not understand the agreement, do not sign the contract. You may also want to get a second opinion or have an expert (like a lawyer) review the contract.
Step 6: Save a Signed Copy!
When you’re finished negotiating and you sign the contract, remember to keep an entire copy (signed by the other side) for your own records.
By following this information, you will better be prepared the next time you’re faced with the exciting contract.
What kinds of contracts are part of your business? Share your experiences in comments.
Disclaimer: This information is for educational and informational purposes only. The content should not be construed as legal advice. The author and Etsy disclaim all responsibility for any and all losses, damages, or causes of action that may arise or be connected with the use of these materials. Please consult a licensed attorney in your area with specific legal questions or concerns.